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1
BRIEFING for the PRESIDENTS COMMISSION on the
UNITED STATES POSTAL SERVICE
January 8, 2003
2
Outline

• Background
• Current Overview
• Transformation Plan

3
Postal Reorganization Act of 1970
Universal Service Mandate Access and delivery
to virtually everyone, everywhere, everyday.
Statutory Requirement The Postal Service
shall provide prompt, reliable, and efficient
services to patrons in all areas and shall render
postal services to all communities.
4
Postal Reorganization Act of 1970
Universal Service Mandate Access and delivery
to virtually everyone, everywhere, everyday.
Business Model Premise Moderate volume growth
and postage rate increases at or below the
economys rate of inflation would finance
universal service and the ever-expanding delivery
network.
5
Universal Delivery Service
6
1971 2002 Comparisons
7
CPI vs. First-Class Postage Rates
8
Post Office Department and Postal Service
Billions
9
Summary Statistics
10
Annual Net Margin
Net Margin Net Income (or Loss) / Revenue
11
Growth in Revenue Per Delivery Point
FY
12
Revenue Composition - FY 2002
Priority 7
Package Services 3
First-Class 55
Standard 24
(Mostly Advertising)
Other 11
13
Expense Composition - FY 2002
Other 13
Transportation 8
Compensation/Benefits 79
14
FY 2001 Expenses
57
38B
38B
15
Fixedvs Volume-Variable Costs FY 2001

• Volume-Variable Costs Include
• - Transportation
• Mail Distribution Work Hours
• Mail Containers
• Fuel
• Retail Transactions
• Delivery Carrier Prep in Office

• Fixed Costs include
• - 38,000 Post Office, Station, and
• Branch Operations
• Del. Rte. Coverage - 240,000 Delivery Rts.
• 215,000 Vehicles
• Retirement Costs
• Overhead

16
First-Class Mail
Major Contribution to Fixed Costs
Contribution to Fixed Costs
Volume
Revenue
First- Class 54
First- Class 66
First- Class 50
Other 46
Other 50
Other 34
FY 2001
17
First-Class Single Piece Letters
(Billions Pieces)
18
First-Class Mail-Sector Analysis
Source Household Diary Study
1987
2001
Household to Nonhousehold
Nonhousehold to Household
Nonhousehold to Nonhousehold
Household to Household
19
Standard Mail Volume 1987 and 2001
90B
B
60B
B
B
B
20
Standard Mail Volume
Billions of Pieces
FY
21
Standard Mail Volume
Market Share 1972- 2002
Direct Mail
Source McCann-Erickson WorldGroup
22
Package Services
Revenue Share FY 2001
Airborne 10
Air
Ground
Source Colography Group
23
First-Class Mail FY 2001
Major Contribution to Fixed Costs
Contribution to Fixed Costs
Volume
Revenue
First- Class 54
First- Class 66
First- Class 50
Other 46
Other 50
Other 34
24
Financial Effect
Volume Necessary to Replace Contribution
From 1 Billion of First-Class Mail Revenue
Volume Increase
Growth
8 26 70 465
Standard Mail or Priority Mail or Express
Mail or Parcel Post
7.1 B 313 M 50 M 1.5 B
25
Competition and Technology

• First-Class Mail
• Business eMail
• Electronic Bill Payment

• Standard Mail
• Print/Broadcast Media
• Internet Advertising

• Periodicals
• Internet News Sources
• Lifestyle Changes

• Packages
• No Longer the Only Nationwide Package Service

26
Strategy Achieve Lowest Combined Cost
Progression of Customer Worksharing Options
1970s
1980s
1990s

• Presorted Bundles

• Presorted Bundles

• Presorted Trays

• Prebarcode Pieces

• Prebarcode Pieces

• Dropship

27
Strategy Achieve Lowest Combined Cost
Postal Operations
1970s
1980s
2000s
1990s

• Automated Letter Distribution

• Mechanized Mail Processing

• Automated Flat and Parcel Processing

• Network Optimization

• Delivery Point Sequencing

28
Pricing Cycle
Preparation
29
Rate Increases Economic Conditions
Rate Increases and Economic Conditions
40
35
30
25
20
15
10
5
0
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
30
Financial Stress
31
Financial Stress - Equity
32
TRANSFORMATION PLAN
33
Transformation Plan

• Push the Envelope

• Legislation Short Term

Public Policy Issues
34
Transformation Plan
Push the Envelope

• Growth

• Efficiency

• Performance Based Culture

35
Transformation Plan Results to Date
Service

• Externally Measured

• Service At Record Levels

36
Cumulative Work Hour Reductions
Transformation Plan Results to Date
Work Hour Reductions
-34M
111 Million Work Hour Reduction - Equivalent to
62,960 Full-Time Employees
-111M
37
Transformation Plan Results to Date
Career Complement Reductions
AP 04
-10,533
-22,218
-45,181
38
Transformation Plan - Results to Date

• First Ever Expense Reduction 200 Million Below
  2001 Level

• Labor Contracts In Place to Provide Stability

• Record Setting Safety Performance

• Negotiated Rate Settlement/Expedited
  Implementation

• Delivered 1.5 Billion of Cost Savings
• Goal - 5 Billion By 2006

39
BRIEFING for the PRESIDENTS COMMISSION on the
UNITED STATES POSTAL SERVICE
January 8, 2003